POSITION PAPER

Committee : International Monetary Fund (IMF)

Country : Brazil
Topic : Cryptocurrency as an Alternative for Sustainable Economy

The role that money plays in modern society can hardly be disputed. It is indeed one of
the oldest human creations and has been repeatedly used as a proxy laboratory for testing new
ideas. Money has therefore been subjected, throughout history, to sudden and profound
changes prompted by Öscal policy failures, in the wake of armed conáic or even induced by
famines. Along with the increasing globalization of the world economy, people's needs for
speed, convenience, and security of financial transactions are increasing. Payment systems that
can be needed that are reliable and easy for banking can be needed. At present, the trend of
transactions using non-cash payment instruments has become an urgent need for the
community. Until now the amount of electronic money in circulation is quite large, there are
20 companies issuing electronic money with various products. Cryptocurrency emerged as an
answer to the constraints faced by the current payment system which relies heavily on third
parties as companies that are trusted payment products to manage digital transactions such as
visa, mastercard, paypal, etc. Cryptocurrency is the name given to a system that uses
cryptography to securely transmit data and to process the exchange of digital tokens scattered.
Until finally in 2008 there was a programmer who claimed he was named Satoshi Nakamoto
(pseudonym) to create a new digital currency named bitcoin. With the emergence of Bitcoin
this turned out to be able to answer the problems related to the above problems, bitcoin emerged
as a currency and also as a data exchange communication protocol using cryptography
technology. Communities need freedom in carrying out financial transactions regarding
payments without being faced with payment system constraints from different publishers.

The fight between Brazilian banks and exchanges continues with gains and losses for both sides.
On August 2018, a large Brazilian bank closed another exchange account. This has caused
significant insecurity for Brazilian cryptocurrency enthusiasts. The purchase and sale of
cryptocurrencies are not regulated in the country,even though its tax authorities recognize them
as a good and subject them to income tax. It is incredible to think that Brazil, a country that
has more people investing in bitcoins than investors in the stock market, has not yet regulated
crypto coins. What was stopping them? Well, so far, unlike in Australia, Canada, Malta, China,
and South Korea, the country has not yet got around to pondering the subject. Whether to ban
or to allow, the matter needs to be discussed further. Because of this, cryptocurrency regulation
in Brazil is blocked by conceptual definitions. Experts split in their opinions on the nature of
digital coins. For many Brazilian financial experts, cryptocurrencies are still considered only a
financial asset and not a real currency.

Meanwhile, in Brazil and around the world cryptocurrency exchanges are clamoring for
regulation. Their greatest fear is to remain unregulated. The regulation process brings maturity
to the market and is part of the innovation process. For example, Uber and Airbnb have also
been regulated, and it only benefitted them and their customers. Federal Revenue, on its turn, in
the questions and answers manual regarding the Tax Declaration 2017 (IRPF 2017), released
every year, has directly treated the theme in its topic “447 — Should virtual currency be
declared?” The answer is “Yes. Virtual currencies (like Bitcoins, for instance), although not
considered as money, as per the terms on the current regulatory mark, they must be declared on
the form “Assets and Royalties” as ‘other assets,’ once they can be comparable to a financial
asset.” The manual has also clarified the following regarding Disposal of Virtual Currencies, on
the topic “607 — Is the income obtained with the allocation of ‘virtual’ currency taxable?” “Yes,
the revenue achieved with the alienation of virtual currency (Bitcoins, for instance), which total
alienated in a month is superior to R$ 35,000.00 are taxable by way of capital gain, to the rate
of 15%. The tax collection over the income must be done until the last day of the following
month from the transaction. The operations must be proven with proper and trustworthy
documentation”. The Draft Bill № 2.303/2015, whose author is the Federal Deputy Mr. Aureo
Ribeiro, intends to include virtual coins as well as frequent flyer programs in the definition of
arrangements of payments, under the supervision of BACEN, with the explanation that a
“prudential regulation” is necessary due to the risks of “monetary alternative to the drug dealing
and money laundering. The Congressman Mr. Expedito Neto has presented a substitute report
to the rapporteur’s report that intends to criminalize cryptocurrencies. As another Congressman,
Mr. Thiago Peixoto, understands that cryptocurrencies should be regulated considering also the
possible benefits of these technologies to Brazil, he presented a third report’s proposal about the
subject. The current legislation, however, already encompasses many situations impacted by
new technologies and they seem to be enough, for now, to regulate new matters arising with the
cryptocurrencies.We are facing a very new market that is in constant transformation. Therefore,
the best thing to do at the moment is to observe, invest in research, and while doing so, apply
the existing judicial rules, as well noted by the representative of the Banco Central do Brasil in
the second Public Hearing about the Project № 2303/2015.